Tong's Value Investing Portfolio as of July 19, 2018




Tong Kooi Ong
We came with nothing, and we will leave with nothing. The sharing economy.
First came the smartphone. It wasn’t an immediate hit. There were the early adopters but the device was not much more than a mobile phone with PDA functions. Smartphone popularity didn’t really take off until Apple gave the world the iPhone in 2007. Its elegant design and touch screen interface was so intuitive and user-friendly that it revolutionised the mobile phone industry and laid the foundation for all smartphones to come.

Crucially, it also changed the way we live by connecting the phone to the Internet and vastly expanded its functionality via the App Store.

For the next decade, it was all about convincing and connecting ever more users to the Internet. Like the smartphone, mobile Internet take up was initially slow due to infrastructure and bandwidth limitations. But with the rollout of 3G and then 4G technologies as well as increasing proliferation of WiFi networks, enhanced user experience drove adoption rates.

The smartphone has changed our lives with every iteration and it is still evolving. But device sales have stagnated. The replacement cycle is lengthening as incremental benefits from the latest model of smartphones decline. After a decade of double-digit growth, new smartphone shipments ended flattish in 2017 (see Chart 1).

Chart 1: New smartphone sales stalled in 2017

The growth in global Internet users too is slowing with market penetration rate now exceeding half the world’s population. Refer Chart 2. Incremental gain going forward will be harder to come by, taking into account spending power and infrastructure for the remaining half of the population.

Chart 2: Internet user growth is slowing

What’s next? And what are the implications?

For starters, the outlook for hardware manufacturers is not great. Aside from Apple, manufacturers have all had to cope with rapidly declining margins as the smartphone becomes increasingly commoditised. Profitability will continue to fall and volume sales growth is tapering off.

Similarly, margins for mobile telcos have been under pressure for some years now as penetration rates reached saturation. In Singapore and Malaysia, mobile penetration is well over 100%. At the same time, telcos have had to maintain huge capex to keep up with new technologies.

Chart 3: We are spending more time online

Notably, the number of hours being spent on the smartphone is still rising with increasing usefulness (services) through innovation, better connectivity and speed as well as falling data costs. See Chart 3.

There are significantly more people spending more time accessing the Internet via smartphones than desktop and laptops combined.

Unsurprisingly, companies including hardware manufacturers and telcos are all pivoting towards the same goal – to monetise usage, through apps and platforms.

Case in point, most analysts believe Apple services – including Apple Music, iCloud, Apple Pay, App Store, etc. – will be the main growth driver for the foreseeable future even though the iPhone is currently its biggest earnings contributor.

Little wonder then there is rush to create apps and platforms to tap this growing and likely lucrative market. Huge investments are being poured into creating mobile video content, gaming, digital payment networks, e-commerce, ride-hailing, social networking, etc.

One of the biggest success stories in this space is Tencent’s WeChat. It started as a mobile chat app in 2011 (China’s version of WhatsApp) that soon extended to in-app gaming and now offers a vast array of ever expanding services built around its mobile payment. One could order food delivery, pay utility bills, book cleaning services, hail rides, transfer money to friends, shop online and pay for practically everything else offline without ever leaving the app.

Grab, the ride-hailing service provider based in Singapore, is only the latest to embrace this strategy. It wants to emulate WeChat as a ‘one-stop super app’ by folding third party developers onto its platform.

Malaysian telco operator, DiGi.com too has jumped into the fray, launching its own mobile wallet (called vcash) in late-2017 and tying up with hundreds of merchants nationwide.

Xiaomi tried very hard to sell itself as an Internet services instead of a hardware company during its pre-IPO marketing, though investor response was lukewarm. The stock made its debut on the Hong Kong Stock Exchange this month and has risen in price but market valuation remains far below the company’s initial goal.

Clearly, not all will succeed. This market is still in its infancy stage and very fragmented but will eventually narrow down to a few big winners plus a handful of niche players.

As huge as the China market, which is the most progressive mobile payments market in the world, it is dominated by just two players. Platforms with the biggest and stickiest user base will have the edge.

The smartphone market created great fortunes for innovators like Apple and Samsung, made household brand names of Xiaomi and Huawei and propelled manufacturers such as Foxconn into billion-dollar companies.

Similarly, it would be hard to overstate the value created by the smartphone-Internet evolution for users.

Aside from great convenience, we have heard much about how the near frictionless platform meant efficient price discovery and competition that led to consumer product prices being lower than they would have been.

Less often talked about it how it facilitated the gravitation towards a subscription economy from one of ownership, with the consequence of creating natural monopolies. How this will be dealt with by governments and society will be a source of great friction and challenge in the years ahead.

More and more people are forsaking the ownership (and clutter) of books, DVDs and CDs for anytime, anywhere, unlimited access to endless libraries with a monthly subscription to Netflix, Spotify, Amazon Prime, Kindle and the likes.

Whilst the entertainment industry best epitomises this trend, it is certainly not alone. For instance, car manufacturers are getting into the game, investing heavily in electric and autonomous vehicles in preparation for rolling out on-demand ride services like Uber and Grab as well as fleet vehicles for a monthly subscription.

This generational shift is driven not just by changing lifestyle and preferences but also, very likely a function of affordability.

Today’s young people are, by most yardsticks, poorer than their forebears. Youth unemployment is often the highest amongst working age population in many countries. Anecdotal evidence shows that millennials are, on average, earning less than the Generation Xers when they were at the same age.

Affordability may not be an issue affecting just the younger generation. Home ownership is increasingly beyond the reach of the average person. Household debt has been trending higher, income growth sluggish and savings rate is declining (see Chart 4).

Chart 4: Malaysia’s rising household debt and falling savings rate

In a way, the subscription economy is the other side of the coin that is the sharing economy, which is where owners make more efficient use of their assets.

The subscription economy allows us to satisfy wants and needs (utility, choice, flexibility, innovation) without the hassles and upfront costs that is the burden of ownership.

In the digital future, we may choose to own nothing. After all, we came into this world with nothing and we will leave with nothing.

Our basket of stocks for the Global Portfolio continued to recover in the past week, gaining 2.3% and lifting total returns to 3.8% since inception. As a result, this portfolio is now once again outperforming the MSCI World Return index, which is up 3.0% over the same period.

Shares in the Malaysian Portfolio too traded broadly higher, mirroring the firmer sentiment for the broader market.

Local investors, both retail and institutional, underscored their continued confidence in the local bourse as net buyers every week since the general election. Meanwhile, the intensity of foreign selling has tapered off somewhat in the past few weeks.

Portfolio value rose by about 3% last week, boosting total returns since inception to 60.3%. This portfolio is outperforming the benchmark index, FBM KLCI, which is down 3.9%, by a long way.





Performance Comparison Since Inception (%)
%-3.960.3-10-505101520253035404550556065
  • Tong's Value Investing Portfolio
  • FBM KLCI
SHARES HELDQUANTITYAVERAGE COSTCOST OF
INVESTMENT
CURRENT
PRICE
CURRENT
VALUE
GAIN /
(LOSS)
GAIN /
(LOSS)
SCGM BHD11,0661.74219,273.71.41015,603.1(3,670.6)(19.0%)
AJINOMOTO (M) BHD1,50012.27818,417.521.72032,580.014,162.576.9%
PANASONIC MANUFACTURING MSIA60028.63717,182.036.88022,128.04,946.028.8%
KERJAYA PROSPEK GROUP BERHAD11,0001.02011,225.01.49016,390.05,165.046.0%
Y.S.P.SOUTHEAST ASIA HOLDING10,5002.41325,340.02.73028,665.03,325.013.1%
LUXCHEM CORPORATION BHD16,5000.71711,825.00.64010,560.0(1,265.0)(10.7%)
FORMOSA PROSONIC INDUSTRIES18,0001.54027,720.01.37024,660.0(3,060.0)(11.0%)
HONG LEONG INDUSTRIES BHD2,0009.27618,551.011.20022,400.03,849.020.7%
WILLOWGLEN MSC BHD19,9000.5009,950.00.52510,447.5497.55.0%
HOCK SENG LEE BHD14,5001.52022,040.01.40020,300.0(1,740.0)(7.9%)
MALAYAN BANKING BHD3,00010.50031,500.09.81029,430.0(2,070.0)(6.6%)
PANTECH GROUP HOLDINGS BHD43,0000.58024,940.00.61026,230.01,290.05.2%
MAH SING GROUP BHD19,0001.07020,330.01.19022,610.02,280.011.2%
ECO WORLD DEVELOPMENT GROUP BERHAD15,2001.23518,772.01.16017,632.0(1,140.0)(6.1%)
Total277,066.2299,635.622,569.48.1%
Shares bought
No transaction.
Total shares held277,066.2299,635.622,569.48.1%
Shares sold
No transaction.
Cash Balance20,919.6
Realised Profits / (Losses)97,985.8
Change since last update Jul 12, 2018
Portfolio3.0%
FBMKLCI3.3%
Portfolio Returns Since Inception200,000.00320,555.2120,555.260.3%
Portfolio Returns (Annualised)16.0%
Portfolio Beta0.608
Risk Adjusted Returns Since Inception99.1%
Performance ComparisonAt Portfolio StartCurrentChangeRelative Portfolio Outperformance
FBM KLCI1,829.71,759.2(3.9%)64.1%
FBM Emas12,700.412,442.2(2.0%)62.3%
Footnote:
*Current price is as at July 19, 2018.
*Portfolio started on Oct 10, 2014 with MYR200,000.
*This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks.

STOCKS SOLD IN THE LAST 12 MONTHS (Currency: MYR)
SHARES SOLDDATE BOUGHTDATE SOLDQUANTITYAVERAGE
COST
COST OF
INVESTMENT
PRICE SOLDSALES
PROCEEDS
GAIN /
(LOSS)
GAIN /
(LOSS)
CLASSIC SCENIC BHD26-Jan-1613-Jul-174,0001.4135,651.31.8157,260.01,608.828.5%
MIKRO MSC BERHAD01-Dec-1627-Jul-1742,0000.33113,920.00.54522,890.08,970.064.4%
CLASSIC SCENIC BHD01-Dec-1627-Jul-174,0001.4135,651.31.7907,160.01,508.826.7%
PANASONIC MANUFACTURING MSIA21-Jan-1627-Jul-1740026.12510,450.037.10014,840.04,390.042.0%
ELSOFT RESEARCH BHD30-Mar-1724-Aug-178,0001.84414,750.02.65021,200.06,450.043.7%
JOHORE TIN BERHAD - WA 12/1704-May-1724-Aug-1717,0000.65511,135.00.68011,560.0425.03.8%
FOCUS LUMBER BERHAD03-May-1730-Aug-176,0001.6609,960.01.5309,180.0(780.0)(7.8%)
WILLOWGLEN MSC BHD23-Nov-1630-Aug-177,0000.7685,377.01.43010,010.04,633.086.2%
WILLOWGLEN MSC BHD23-Nov-1628-Sep-177,0000.7705,377.01.1808,260.02,883.053.6%
LII HEN INDUSTRIES BHD14-Dec-1628-Sep-175,0002.82014,100.03.72018,600.04,500.031.9%
COMFORT GLOVES BERHAD28-Aug-1708-Dec-1725,0000.96024,000.00.93023,250.0(750.0)(3.1%)
JOHORE TIN BHD08-May-1708-Dec-179,0001.60014,400.01.18010,620.0(3,780.0)(26.3%)
THONG GUAN INDUSTRIES BHD12-Dec-1608-Dec-175,0004.24321,215.04.10020,500.0(715.0)(3.4%)
KERJAYA PROSPEK GROUP BERHAD12-Jan-1715-Mar-1811,0001.02511,280.01.54016,940.05,660.050.2%
KERJAYA PROSPEK GROUP BERHAD - WARRANTS B 2018/202308-Mar-1815-Mar-183,0000.0000.00.330990.0990.0-
LUXCHEM CORPORATION BHD30-Aug-1715-Mar-1816,5000.73212,072.50.72011,880.0(192.5)(1.6%)
WILLOWGLEN MSC BHD14-Dec-1722-Mar-1820,0001.01020,200.01.26025,200.05,000.024.8%
MUAR BAN LEE GROUP BERHAD26-Oct-1722-Mar-1813,5001.24016,740.01.17015,795.0(945.0)(5.6%)
CHOO BEE METAL INDUSTRIES BHD07-Sep-1716-May-188,0002.19017,520.02.44019,520.02,000.011.4%
CHOO BEE METAL INDUSTRIES BHD07-Sep-1721-May-188,0002.19017,520.02.30018,400.0880.05.0%
SUPERLON HOLDINGS BHD01-Dec-1721-May-186,0001.1757,050.01.5509,300.02,250.031.9%
OKA CORPORATION BHD14-Dec-1728-Jun-1812,0001.54118,488.01.27015,240.0(3,248.0)(17.6%)
SUPERLON HOLDINGS BHD01-Dec-1728-Jun-186,0001.1757,050.01.2107,260.0210.03.0%
WILLOWGLEN MSC BHD14-Dec-1728-Jun-181000.50050.00.54054.04.08.0%
A Note to Readers
It is my pleasure to share with you my Value Investing Portfolio. However, I must emphasize that it is by no means a recommendation or a solicitation or expression of views to influence you to buy or sell any stocks. I am just sharing openly on what I am doing with my stock portfolio.

Further, I like to remind all investors that investing is not just about the profits or returns. You will inevitably suffer stock losses too. You need to understand your own investment objective, risk appetite and the amount of loss you can afford to bear. So, while many investors talk only about absolute returns, I am also sharing the computed risk-weighted returns of my portfolio.


Tong Kooi Ong
http://www.theedgemarkets.com/aa/tong/portfolio